Links with the
Why Jersey is at the forefront of banking, wealth management and corporate services
Jersey structures for safeguarding real estate investment in the UK and beyond
The appeal of Jersey for succession planning, wealth preservation and philanthropy
End of service gratuity schemes for expatriate workers
Welcome to Links with the GCC Jersey has been a leading international finance centre for more than 50 years. At the forefront of global banking, wealth management and corporate services, it has developed an offering that balances product innovation alongside high standards of regulation, world class legislation and in depth expertise from a range of experienced practitioners. The following articles explore the ingredients that have given Jersey this competitive edge and examine the benefits to intermediaries and their clients of working in partnership with practitioners in Jersey.
Geoff Cook Chief Executive, Jersey Finance
Links with the GCC is published by Jersey Finance. The publication highlights how businesses in Jersey and the GCC can work together in support of the strategic objectives of clients both in, and with links to, the region. It complements other publications in our ‘Links with’ series on China, India and Russia. If you are interested in contributing to our ‘Links with’ series, please contact: Lucy Braithwaite T: +44 (0)1534 836009 E: email@example.com
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Commercial property investment
Jerseyâ€™s attraction Links away from the world of finance
Contents 06 08 10 12
14 16 18
Islamic Finance in Jersey Succession planning Trusts for succession planning Trusts with offshore and onshore assets
Jersey for non-standard investments Philanthropy in the Gulf Bringing the family (office) to the front
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GCC banks in Jersey SPVs for Gulf banks
Resources for natural resources End of service gratuity schemes Useful contacts
Attraction One of the world’s leading international finance centres, Jersey is a compelling choice for clients across the Gulf region. Key factors in Jersey’s appeal are its political and economic stability, high standards of corporate governance and regulation, and its position as a gateway to western markets.
Strong ties Jersey is able to offer tailored products and services and this flexibility appeals to the region’s unique cultural and financial requirements. The demand from Gulf investors for trusts, property holding structures and foundations is strong and Jersey is already home to an expanding range of Shariah compliant financial products. The finance industry is represented directly in the GCC through its office in Abu Dhabi. It opened in 2011 and acts as a local hub in communicating the range and depth of financial services that Jersey can provide. Jersey has also formed an Advisory Group consisting of senior finance industry representatives from banking, wealth management, legal services and corporate listing specialists, who assist as we develop even closer commercial ties in the region.
Political and economic stability Jersey has an allegiance to the British Crown and a unique constitutional relationship dating back through charters to 1204. It permits Jersey domestic autonomy, through a democratically elected Parliament, and its own judicial system based on common law principles. Jersey’s Government, the States of Jersey, is a pragmatic debt-free government, which has no deficit and a policy of balanced budgets, with long-term fiscal reserves.
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The banking model in Jersey is diversified and does not rely on wholesale funding. Its security and strength is further complemented by Jersey subscribing to the Basel standards and holding an average core capital ratio, across the banking sector, of 14.8%, some 50% higher than the required international standard. Jersey has the appropriate environment in which to protect and grow assets, combining stability, sound regulation and a tax neutral jurisdiction, while the exceptional financial strength that underpins Jersey’s banking industry is of great reassurance. Gulf investors agree and currently some £21 billion in Gulf deposits are held in Jersey based banking institutions, representing 14% of total deposits in Jersey.
Regulation Jersey remains one of the world’s most highly regulated international finance centres - a position that has been acknowledged by independent assessments from some of the world’s leading bodies, including the World Bank, the OECD and the IMF. Through the Jersey Financial Services Commission (JFSC), it demonstrates its ongoing commitment to global standards of financial regulation thanks to international best practice and global co-operation. Jersey has been a long standing participant in the OECD Information Exchange programme and was recently praised by the OECD’s Head of Global Forum on Transparency and Exchange of Information for Tax Purposes, for playing
Some £21 billion in Gulf deposits are held in Jersey based banking institutions, representing 14% of total deposits in Jersey
KINGDOM OF SAUDI ARABIA
an important role in the Global Forum as a member of its Steering Group and helping to shape global standards. Close regulatory links in the GCC have also been established through the signing of a Double Taxation Agreement with Qatar and a Memorandum of Understanding between the Central Bank of the UAE and the JFSC.
International recognition Jersey remains the highest ranking offshore jurisdiction in the Global Financial Centres Index, which has tracked the competitiveness of financial centres around the world since 2007. Furthermore, following three awards as top offshore jurisdiction from leading publishing groups in 2012, Jersey has recently won more prestigious accolades including: ‘IFC of the Year’ at the Citywealth Awards 2013; ‘International Finance Centre of the Year’ at the Wealthbriefing European Awards 2013 and ‘Best Offshore Centre’ at the Global Investor/ISF Awards 2013.
A gateway to Western markets
UNITED ARAB EMIRATES
Increasing numbers of Jersey based trust companies and finance houses have continued to expand their capabilities in the GCC, in some cases opening offices there. There are also examples of Gulf based businesses establishing a presence in Jersey, such as Abu Dhabi Commercial Bank, which opened an offshore office in St Helier last year, and a subsidiary of Emirates NBD, ENBD Trust Company (Jersey) Limited, which is a managed entity in Jersey. Many high net worth individuals and family firms in the GCC have used Jersey to establish international holding structures. Members of some key families in the UAE have private business structures in the jurisdiction and a number of families own their UK properties through Jersey. Islamic finance activity includes Islamic asset management and fund domiciliation, Special Purpose Vehicles (SPVs), Sukuk structures and Islamic private wealth management. Jersey is an ideal choice for clients from the GCC. It has long established links with the region and boasts an excellent track record and business environment, together with a highly skilled network of financial intermediaries and legal specialists. ■
It is from this platform of stability, sound regulation and international recognition that Jersey is expanding its presence in the Gulf and welcoming new business from the region.
JERSEY FINANCE: LINKS WITH THE GCC
Jersey and the UAE
LINKS AWAY from the
The famous ‘Jersey Cow’ Wildlife conservation A strong link has developed between the Mohammed bin Zayed Species Conservation Fund and the Durrell Wildlife Conservation Trust in Jersey. Durrell, an organisation founded by pre-eminent conservationist and author, the late Gerald Durrell, has received several grants from His Highness General Sheikh Mohamed bin Zayed Al Nahyan’s fund for its international conservation activities. The Ruler of Sharjah is also a supporter of Durrell. After a private visit to the wildlife park in Jersey, he was inspired to create the Sharjah Desert Park, as well as a Breeding Centre for Endangered Arabian Wildlife, which is now a world-class institution.
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The Ruler of Fujairah, a former Minister of Agriculture of the UAE proudly owns his own herd of Jersey’s famous breed of cow and is an honorary member of the Jersey Cattle Bureau. Jersey cattle can also be seen across the Gulf region.
Sculpture by Simon Smith
The strong relationship between Jersey and countries in the Gulf is not simply a result of financial business activity. Other Jersey industries and individuals have made their mark on the region’s commercial landscape.
Craftsmanship Jersey sand sculptor Simon Smith has worked all over the world, including at the Shangri-la Hotel in Abu Dhabi, where he produced a model of the Sheikh Zayed Grand Mosque. He has also worked in Sharjah and frequently in Dubai, where he has constructed remarkable artworks for events such as the Dubai Shopping Festival and for individuals including Sheikh Maktoum bin Rashid, former Dubai Ruler and UAE Vice President. In recent years, Jersey Pottery has designed and manufactured in excess of 10,000 pieces of pottery, worth close to £100,000, for one of the world’s top hotels, the Emirates Palace Hotel in Abu Dhabi. Finally, Aurum jewellers in Jersey has designed and crafted trophies for prestigious horse races, including the Dubai Classic and the Nad Al Shiba Classic.
International Relations Individuals and groups from Jersey are making regular trips to the GCC for both business and pleasure. Meanwhile, Jersey’s officials make formal visits to the region and are proud to have strong relationships with their counterparts there. Commercial organisations are also being encouraged to expand to the region. So whilst established links are being strengthened, new ones are developing all the time. ■
Scientific Jersey resident Professor Graham Evans is a world expert on the salt flats (sabkhas) of the UAE and he has been campaigning for some time to save the sabkha along Abu Dhabi’s western shores.
JERSEY FINANCE: LINKS WITH THE GCC
Islamic Finance in Jersey
Trevor Norman Director of Funds & Middle East Group Volaw Trust & Corporate Services Limited
Financial institutions in Jersey have been providing services to Muslim clients, particularly those resident in the GCC, for many years. Unlike some other western countries, Jersey has not had to make any changes to its laws to permit Islamic financial transactions or investment, thereby ensuring that conventional and Islamic financial products are governed, regulated and administered on the same basis. Many of the changes to the laws of other countries derive from having to determine the taxation treatment of financial contracts under Shariah, where interest is forbidden and where the profits arising from the Shariahcompliant contract do not readily fit within the countries’ tax laws. Jersey’s position as a tax-neutral jurisdiction means that no such amendments are necessary, but also our other corporate laws and regulations are such that in over fifteen years of structuring Shariah-compliant vehicles, I have yet to encounter a problem with a structure or contract that could not be accommodated within Jersey’s laws.
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Shariah compliance Flexibility is particularly relevant in the context of Shariah-compliant financial products, because there are a number of different schools of Islam, each having their own interpretations of what is and is not compliant, such that a financial product that is certified as being Shariahcompliant in Malaysia may not be deemed to be compliant by Scholars from the Kingdom of Saudi Arabia. These differences are not only confined to financial products, there are also variations between the schools over the rules of inheritance and forced-heirship. Many practitioners from Jersey are well versed in the basic concepts of what is and isn’t Shariah-compliant from a financial perspective, however, they will often have to work with a Shariah Scholar to ensure that more complex structures and arrangements, for both individuals and institutions alike, comply with Shariah law, such that, where relevant, the Scholar can approve a fatwa (ruling) for the financial service being provided.
Private wealth management vehicles Jersey’s position as an international financial centre is founded on the provision of private wealth management services such as the establishment of trusts, private companies, and more recently foundations. Many such structures have been established for GCC residents. There are many reasons why an individual may wish to establish such an entity ranging from the simple creation of a company to own, for example, a holiday residence in London, to the more complex structures required by a family office or the ownership of a family business to ensure that this is not broken up on the death of the patriarch and founder.
Corporate vehicles and funds The Jersey Financial Services Commission (JFSC), as the regulator of financial services in Jersey, does not impose any additional or different regulatory criteria on a vehicle established to issue securities be they either ‘conventional’ or Shariah-compliant; nor does it impose any requirements over the establishment of the Shariah Supervisory
Board that will issue the fatwa and monitor the Shariah compliance of the vehicle and its investments. The JFSC have established close links with regulators throughout the GCC, and have Memorandums of Understanding with many of these, the one with Bahrain having been signed in 2002. It follows that Islamic funds and Sukuk issuance vehicles established in Jersey will have to conform to Jersey’s laws and will be subject to the same standards of corporate governance as ‘conventional’ funds and securitisation vehicles. Whilst this implies a similarity between Shariah-compliant vehicles and conventional funds and securitisation structures, there is much more to establishing a Shariah-compliant transaction than a simple rewording of conventional transaction documentation.
Experience and expertise The advantages of Muslims using Jersey for either private wealth structures or the issuance of securities are very similar to those for any other group, but Jersey’s longstanding connections to the Middle East bring an additional benefit of experience and expertise in establishing these structures in a Shariah-compliant context. ■
In over fifteen years of structuring Shariah-compliant vehicles, I have yet to encounter a problem with a structure or contract that could not be accommodated within Jersey’s laws
Shariah The two primary areas of Shariah-compliant service in Jersey are those offered to:
Through private wealth management services such as the establishment and administration of trusts, foundations and private companies.
By way of establishment and administration of collective investment funds, and other vehicles for raising finance or the investment of capital.
JERSEY FINANCE: LINKS WITH THE GCC
Elements of succession planning range from dividing wealth to tax and legal issues affecting families with complex assets, especially those distributed across a number of legal jurisdictions.
SUCCESSION PLANNING Mitigating risks to family wealth Peter Unwin, Director at Stonehage, an international multi-family office, explains that for wealthy families, succession planning is the most important tool of long-term risk management.
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Managing risk The role of properly structured succession planning in reducing risks to family wealth is beyond dispute. Yet this risk management tool is often overlooked, both by families themselves and their advisers. Many of Jersey’s professional advisers are ideally placed to assist in this matter to mitigate risks and bring considerable benefits to wealthy families. In the current economic environment, there is a great deal of focus on the management of risk and, in particular, the potential vulnerability of the family business or the investment portfolio to economic downturn. In the longer term, the biggest risk of all is a breakdown of communication within the family itself. At its mildest, this can result in a loss of direction and leadership and, at its worst, in a full scale family war, as different family members fight each other for the assets, legacy or the family leadership. Succession planning is therefore the most important tool of long-term risk management. It can help provide solutions to issues that could otherwise be detrimental to a family’s wealth and well-being, and it improves the chance that their assets will survive through multiple generations.
Drawing up a plan Effective succession planning exercises bring considerable benefits to wealthy families. The drawing up of a succession plan is, in the first instance, the prerogative of the founder of the wealth, or subsequent family leadership, but this should generally be done with some degree of consultation among those principally affected. It is therefore advisable to involve the next generation in a consultative exercise. Those concerned need to have a say and the opportunity to work together with other family members in defining a common set of values, objectives and a governance framework. Elements of succession planning range from dividing wealth to tax and legal issues affecting families with complex assets, especially those distributed across a number of legal jurisdictions. The breadth and depth of experience and expertise offered by Jersey’s professional community means that individuals and families have unparalleled access to advisors and trustees with a genuine understanding of such issues. Alongside this, Jersey has a range of structures, including trusts, foundations, Private Trust Companies and Special Purpose Vehicles, which can be adapted to suit the most complex family requirements and to comply with Shariah. ■
WHAT CAN GO WRONG? DISPUTES The consequences of failure to plan are well known. Perhaps the most obvious are disputes between siblings following the death of the founder, or disputes between those who are involved in the family business and those whose first concern is to protect the value of their inheritance.
CONFLICTING PRIORITIES There may be family members who want to use family wealth to invest in new ventures, following in the entrepreneurial footsteps of the founder, whilst others have no interest in business and prefer the wealth to be independently managed by professionals. In addition to business strategy, there is the simple issue of management competence and the danger that the next generation does not have the talent to run a large business.
LACK OF CLARITY These risks are greatly magnified by a lack of a clear framework for making decisions and also of a clear set of objectives originating from the founder and renewed by successive generations.
JERSEY FINANCE: LINKS WITH THE GCC
2050 2025 2020
Sarajane Kempster, Private Client Director, RBC Wealth Management explains the benefit of trusts for structuring and estate planning.
It has often been said that money moves from where it is unsafe to where it is safe. Given the current instability in the Gulf region, never has wealth preservation been so important. Whilst the concept of the common law trust is not traditionally familiar in the GCC, its use is likely to be suggested or at least considered when advising families on structuring and estate planning.
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Wealth in the region has been created in a short space of time, in many cases during one generation of a family. The result is that most decision making and strategic thinking has been undertaken by the patriarch of that family. Decisions are now needed around succession as the ageing population of patriarchs turn their minds to retirement and the protection of their legacy. âž¤
COMMON LAW TRUST
The Islamic Waqf is actually very similar to a trust in many ways and has been used by Muslim families for centuries in donating assets for religious or charitable purposes.
The common law trust is a legal relationship that exists when a person known as a settlor transfers the legal ownership of assets to another person or a corporate known as a trustee. The trustee then holds “on trust” those assets for the benefit of other persons known as the beneficiaries. Whilst the trustee manages and administers those assets and is responsible for their safeguarding and preservation, it is only the beneficiaries that can derive any economic benefit from the assets. It is this very concept of being able to separate legal ownership from beneficial ownership that gives the trust its unique personality and results in a number of succession planning advantages.
Those advantages include, but are not limited to; ■S EPARATING OWNERSHIP FROM THE MANAGEMENT OF A FAMILY BUSINESS ■ CONFIDENTIALITY ■ ASSET PROTECTION ■ THE AVOIDANCE OF FORCED HEIRSHIP RULES ■ TAX MITIGATION
Since the uprisings of the Arab Spring and the continuing climate of social and political instability in some Arab countries, the need for confidentiality has become even more
“Trust assets can be managed by the trustees in a way that adheres to Shariah principles”
important. The fact that the details of a trust are not held or contained on any public registry affords the family a high degree of privacy. The acquisition of assets in the name of trustees or underlying corporate also affords the HNW family some anonymity in a transaction, thus limiting any potential danger presented to family members or their reputation. A more traditional use of a trust in common law jurisdictions is protecting family assets from spendthrift beneficiaries. The second or third generation of a family may not have the same attitude in relation to money and spending as the first generation. A trust therefore provides a mechanism through which the wealth creator can dictate, both during and after his/her lifetime, the amount and timing of distributions to beneficiaries. Situations that would, under normal circumstances, potentially compromise the value and structure/makeup of the estate, such as a breakdown in family relations, are avoided as assets no longer form part of the family estate. The economic and political events of the last few years have made many HNWIs even more aware of the need to protect their wealth in the face of uncertainty. Common law trusts have existed for centuries and have evolved over time to meet changing needs, making them a preferred option for clients in today’s civil law jurisdictions. Their flexibility allows them to be tailored according to an individual’s goals and requirements, which is why they will remain the structure of choice for years to come. ■
Shariah principles A common misconception is that trusts are established as a deliberate attempt to defeat Shariah law. This is not so. A trust is a sufficiently flexible structure that it can be established in such a way as to observe and respect the religious wishes of the family. The trust assets can be managed and administered by the trustees in a way that adhere to Shariah principles particularly with regard to the nature of investments and distributions. The trustees would usually consult with Shariah scholars in both the creation and operation of such a structure.
JERSEY FINANCE: LINKS WITH THE GCC
with offshore and onshore assets
Lucia Perchard, Vice President, Barclays Wealth Advisory Jersey, explains how High Net Worth clients in the Gulf region are diversifying asset allocation, location and structuring. High Net Worth clients from the Gulf region are increasingly examining the need to diversify, not just in terms of asset allocation, but also asset location and asset structuring. At the same time, their succession planning objectives continue to be important. As a result, increasing numbers of clients and their advisors are now considering the type of strategies and structures that should be implemented both with offshore and onshore assets.
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Design is key Wealth preservation, strategic control and succession planning are often prime concerns for families from the GCC. Trusts continue to be the structure of choice for many clients with respect to their offshore wealth. Jersey is a well-established, stable, and regulated financial centre with a highly regarded legal system. The changes made to the Trusts (Jersey) Law 1984, which enable the creation of trusts of unlimited duration, has added to this attraction and is useful when there are a number of successive generations. Jersey has developed a strong profile in the region, where family wealth is a key part of the culture. As a consequence, long-standing relationships have developed with many clients resulting in a good understanding of the families, their wealth and their wealth planning goals and ambitions.
KEY AREAS OF FOCUS
Multiple trusts? Advisors are increasingly paying attention to the design of trusts to ensure that they fully achieve their client’s personal objectives. Trust structures can offer sophisticated solutions for complex families, but need to be carefully thought through in respect of every asset class and each branch of the family. Often it is necessary for clients and advisors to create more than one trust to fully achieve the client’s wealth planning objectives. Creating separate trusts helps to ring-fence and protect assets, which can be extremely valuable when combined with Jersey’s strong anti-forced heirship laws.
A Case Study Hawksford Group The Client The client, a UAE based family, required solutions to be implemented for succession planning and wealth preservation purposes, allowing for the devolution of wealth in a controlled manner. Who we worked with: ■ Multi-jurisdictional tax specialists ■ Hawksford’s Swiss team in Zurich ■ Investment managers
Shariah compliance? Clients may want the trust fund to be divided in accordance with Shariah but for certain shares to be held on trust for various reasons, including until a child reaches a certain age. Advisors and trustees in Jersey are familiar with Shariah and how its tenets can be incorporated within a trust structure. Where trust compliance with Shariah is required, clients can discuss with their trustees and local advisors how best to ensure that these compliance objectives are met, addressing questions such as: whether the settlement of assets on trust constitutes a valid gift for Shariah purposes; how the trust fund should be divided and distributed in accordance with Shariah after the settlor’s lifetime; whether it is possible for assets to remain on trust in certain circumstances; how to ensure that any investments made by the trustees are Shariah compliant and whether it is possible to use the assets held on trust to deal with charitable payments, defined as Zakat.
PTC forward thinking A Private Trust Company (PTC) is a wealth structuring solution that can be used by individuals across multi-jurisdictions, looking for full flexibility as to how they hold their assets. A PTC essentially enables a family to create their own corporate vehicle to act as trustee of their trusts, which can be managed and controlled by the family and their advisors. Therefore, PTCs are well suited to the GCC market as they work well for families who have complex wealth structuring needs and families who wish to retain strategic control of their wealth across successive generations.
Having already worked with this client for more than two decades, we understood the complexity of the client’s wealth portfolio and the financial objectives. The structures would primarily need to be set up for succession planning and wealth preservation purposes, allowing for the devolution of wealth in a controlled manner, under the guidance of Hawksford as professional trustees. The client wanted to hold substantial assets within the structure and these would include real estate in the USA and the UK, traditional investments, works of art and a multi-generational family business. The patriarch of the family advised the trustees of his intent to emigrate permanently from the UAE. Whilst the beneficiaries were resident in the UAE, the structure was tax neutral; however the move being proposed was to a jurisdiction that imposed a punitive tax regime on certain structures.
The solution As trustees, we engaged with a firm of specialist tax advisers in the relevant jurisdiction. By utilising our Swiss team’s expertise and knowledge, together with the Jersey team’s skills, we were able to recommend and create a New Zealand Private Trust Company (PTC), administered from our Swiss and Jersey offices. This solution was not only compliant from a tax perspective, but also offered the patriarch additional control as he was able to act as one of the directors of the PTC. The structure continues to retain all of the benefits that were originally created more than 20 years ago. This solution provides the client with a flexible approach to a complex, multijurisdictional and multi-asset class challenge.
Jersey has a well-established PTC regime and has the most PTCs on its company registry when compared to other UK offshore jurisdictions. All indications are that PTCs will continue to increase in popularity, especially as part of a wider wealth structuring solution encompassing family offices. ■ JERSEY FINANCE: LINKS WITH THE GCC
Jersey The ideal jurisdiction for
NON-STANDARD INVESTMENTS Kathy Gillen, Partner, Moore Stephens The recent introduction of foundations as a wealth management structure in Jersey has put the island in an ideal position to support investment in non-standard assets. Foundations are a more flexible structure than a trust and are much more familiar to Middle Eastern clients. Due to innovations in the way they are managed, which give them a more corporate feel, they are better suited to holding family business style assets. âž¤
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The foundation also has several benefits for managing family wealth, particularly when considering clients in the Middle East. Utilising Jerseyâ€™s prominent position as an international finance centre, it is very convenient to invest in businesses including those in the United States, a market that has proven popular with investors in the Gulf region. Moore Stephens has offices in the US and our clients own a wide variety of assets there including:
These non-standard assets are well suited to a foundation and are normally owned by a family business company held within the structure.
Control of assets
Control of assets is also a crucial aspect of investment for Middle Eastern clients and this is an area in which foundations in Jersey have significant advantages. The structure enables the client to have more day to day control over their wealth. Importantly, for those managing family wealth or family business interests, the foundation structure also permits younger members of the family, who are set to inherit the assets, to experience what it is like to manage them before they become solely responsible.
The flexibility of Jersey law is also a vital part of the mix for two principal reasons. Firstly, it allows for foundations to be wound up easily when required. Secondly, it is flexible enough to be adapted so that a foundation can be managed within the tenets of Shariah Law.
Additionally, if an asset is held purely for family reasons, where safeguarding the asset (and enjoying its use) is more important than a return, it can be incompatible with the structure of a trust but can be managed within a foundation. Succession and estate planning are, therefore, very effectively managed through a foundation.
With offices in the Gulf region, featuring Arabic speaking employees, Moore Stephens is well placed to support these investors looking at Jersey as a jurisdiction in which to manage their wealth and take advantage of the foundation structureâ€™s many benefits. The foundation is an extremely compelling structure for Middle Eastern clients. It allows for the management of a range of alternative assets and is an excellent solution for succession planning as it gives greater certainty over asset preservation and succession for future generations. â–
A Case Study The recent establishment of a foundation with a father and his two sons being appointed to the council is a prime example of how a Jersey foundation can be used to ensure clear lines of succession. The family remains involved in the decision making process whilst benefiting from the support of tax professionals and other trusted advisors and the sons are able to gain experience and knowledge before stepping up and taking control. This enables the family to plan for the future as subsequent generations may be invited to join the council as and when they show the inclination, thus ensuring that experience can be passed on.
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Philanthropy in the Gulf
Frederick Deacon from Whitmill Trust reports on a Jersey Foundation set up to support philanthropy and charitable giving in the Middle East.
Increasingly wealthy individuals and large companies are becoming interested in philanthropy, whether as a means of meeting their own altruistic desires or as part of a Corporate Social Responsibility (CSR) programme. This is increasingly true of those in the Gulf region. In 2009, a private equity house based in Dubai, whose shareholders are drawn from across the Gulf, announced that it was making a sizeable endowment to support and educate children who had been orphaned as a result of conflict in certain Middle
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Eastern countries. The funding was provided as part of its CSR programme and its ongoing commitment to the region. There were concerns that this endowment should not be seen as a mere charitable gift made without any sense of strategy or longevity. Indeed it was intended that this should be truly philanthropic, with the private equity house having a continued involvement in the decision making processes regarding setting strategy and allocating monies to specific projects, as well as through direct support. âž¤
WHY CHOOSE A JERSEY FOUNDATION? ✔
It offers great flexibility
The founder can sit or appoint members to the council of the Foundation, which acts like a board of directors in a company
A minimum level of capital or initial endowment is not required
Jersey does not require a Foundation’s objectives to be non-profit making aims, however any Foundation registered for purely charitable purposes is automatically registered as a not-for-profit organisation
The council members can be individuals or corporate entities, but must include at least one person registered under the Financial Services (Jersey) Law 1998 and licensed to act as a qualified member of a Jersey Foundation
The founder can reserve certain powers, can act as guardian to the Foundation or appoint a third party to do so – overseeing the activities of the council and enforcing if required Unlike a trust, a Foundation has a separate legal personality and therefore can hold assets in its own name and contract, and can sue parties
The orphans ranged in age from infants to teenagers and it was therefore important to ensure a suitable structure was in place enabling the private equity house to maintain control, investing and managing the funds for the next twenty years. There were also a number of additional concerns, including possible mismanagement and issues relating to corruption, coupled with the ever-present fear that they could inadvertently be financing terrorism.
A Jersey Foundation is an ideal vehicle for any Company, individual or family looking to establish a vehicle for charitable purposes. It can be tailored and managed in such a way as to ensure their philanthropic goals are achieved, whilst at the same time it can ensure that the assets and projects are properly managed and that there is a much, or as little, publicity as the founder desires. ■
A solution was required to address these issues and, of course, to achieve the intended goals. In the first instance, the creation of a charitable trust was considered. However, this did not deliver the right levels of control and flexibility. Secondly, the possibility of establishing a Private Trust Company to act as trustee of the charitable trust was examined, but this seemed to be a ‘sledge hammer to crack a nut’ approach. Eventually a Jersey Foundation was decided upon. Working with the relevant parties, we arranged for the Charter to be drawn up, together with a bespoke set of regulations, and we registered the Foundation. We’re pleased to report that the Foundation has been successfully funding projects in the region for the last three years. Its council meets twice a year to receive reports, consider on-going needs and to decide upon actions to be implemented. As administrator, we work to maintain the statutory and financial records, liaising with auditors to ensure that information is available to the founder’s executive board and shareholders.
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Bringing the family (office) to the front
Joanne Luce of Aqua Trust discusses the concept of the family office and all its merits. The first family office was established by the Rockefeller family in the late 19th Century and, whilst the platform has seen much change, the format and objectives remain broadly the same – it is a way of providing cohesive professional and personal services to wealthy families. Jersey is extremely well placed to develop and lead the field in this area, having developed strong links with the UK and it is now working with the State of Qatar and India to broaden Jersey’s ability to develop these arrangements.
The Single Family Office The Single Family Office (SFO) typically handles the financial tax and structuring operations of a single family. Following Jersey’s amendment to its Trust Law, this Private Trust Company structure can often be found in the jurisdiction. It usually has two or three staff and takes on and utilises offshore expertise, be it legal or tax related, where necessary. It is private and there is no requirement for regulation under the Financial Services (Jersey) Law 1998, provided that broadly speaking it can secure the necessary exemption by showing that its services are limited to the family and that it does not generate income or offer services in the way that a Regulated Trust Company or Fund Services Business does. ➤
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Its advantages include: the ability for the wealthy family to have their team looking after their diverse and particular interests; the avoidance of the layered costs of using individual providers; and the fact that services are bespoke so they are arguably fitter for purpose. Easier communication amongst the family office team ensures that strategies are coordinated, as are the bespoke services and solutions. The relationship, when working well, can create ‘gestalt’, where the sum is greater than the whole – if you have trust and confidence that your team is looking after your family’s affairs, that level of confidence can create an additional layer of value and can encourage deeper and more personal relationships.
What makes the Multi Family Office mighty? The Multi Family Office (MFO) perhaps provides a way of achieving a number of the benefits of a SFO but without the price tag. Some argue that to set up a SFO, the family needs to have around £500 million. Whereas a traditional SFO pays a premium to its team for their expertise and brings a corresponding price tag, the MFO can still offer the family access to specialised talent. It can counsel intellectual capital and systems, whilst service levels are significantly bespoke. They are not unique to the family however, rather the families (and there will be a small number) all take advantage of, and meet the costs of, the specialised talent. A family office offers specialised services but probably its greatest strength is the delivery of coordinated packages of services such as planning, taking into account the strong tax, legal or risk management strategies, and assisting with Trusteeship closely held business management and estate planning. This can include improving the Return on Capital Expended (RoCE) and each MFO will have its specialised skill set.
The critical advantages are: ■ R emoving the costs of the layers – rather than an Accountant, Tax Adviser, Legal Advisers, Offshore Practioner and Private Banker, the family may simply have one cost ■ T he family receives superior service – the MFO will treat the family as important to them
How to find a good MFO Word of mouth is the best indicator and testimonials from clients or advisors are key. As a checklist, the family should ensure that: The MFO has the ability to provide the specialised services the family needs The professionals who run the business can demonstrate that they have significant years of expertise, strong qualifications and are subject to the appropriate regulation The MFO is a Regulated Trust Company Business or Fund Service Business and has adequate insurance and capital adequacy The Principals of the MFO can demonstrate that they have a good working relationship with their regulators There is clarity and transparency in the MFO’s billing terms After ensuring that the family meet and feel confident with their key contacts, the final priority is for them to negotiate a mutually agreeable fee.
■ T he family has the benefit of experienced and coordinated advice, strategies, services and solutions, as the MFO will have open and free communication and complete client focus ■ T he ability to develop ‘gestalt’, thanks to having the added extra of a bespoke team, with whom strong relationships have been built, putting the client and family first. ■
JERSEY JERSEY FINANCE: FINANCE: LINKS LINKS WITH WITH THEGCC GCC
COMMERCIAL PROPERTY INVESTMENT
Owen Lynch, Director, LGL Trustees Limited looks at Jersey’s compelling appeal as a jurisdiction for domiciling structures for commercial real estaterelated investments, particularly in the United Kingdom.
Individuals and organisations in the GCC have enjoyed a long and fruitful history of working with Jersey businesses providing trust company services. This relationship has deepened and expanded in recent years as the level of international investment originating from the GCC has returned to pre-financial crisis levels. Jersey’s appeal as a jurisdiction for domiciling structures for commercial real estate-related investments, in the United Kingdom in particular, is compelling. ➤
ADVANTAGES OF THE JERSEY LIMITED PARTNERSHIP 20 JERSEY FINANCE: LINKS WITH THE GCC
It allows flexibility in the arrangements between the investors as the Limited Partnership Agreement can readily be tailored to meet the needs of investors
It is easy for the asset manager to co-invest and to have a carried interest based on performance
Jersey is a tax neutral jurisdiction, with high standards of corporate governance and regulation. It benefits from a large number of highly qualified professionals, including Trustees/Administrators, Lawyers and Accountants, with an in-depth experience of real estate investments, together with a good understanding of the principles of Islamic Finance and experience in implementing structures meeting these principles. Its independent and experienced judicial system has a proven ability to deal with issues arising from complex investment structures, and innovative and flexible legislation permits the establishment of a wide-range of structures in order to meet the particular requirements of international investors.
Types of investors and assets Investors in commercial real estate in the United Kingdom and elsewhere include families, international corporations, Sovereign Funds and ‘club deals’ between small groups of investors. The assets acquired by structures managed in Jersey include residential developments, prime office development and investment properties, student accommodation and retail premises. The type of structure established for commercial real estate-related investment depends on the circumstances and requirements of the particular client. Where there is a single investor, a common structure involves the formation of a special purpose company to acquire the asset. In the case of ‘club deals’, or where there is a professional asset manager involved, the preferred structure often involves the establishment of a Jersey Limited Partnership, with underlying special purpose companies (normally incorporated in Jersey) owning the investment property.
Tax Structuring Using Jersey as a domicile for an investment structure can provide a number of tax advantages. Obviously it’s important that full tax advice is obtained before establishing the structure as international taxation rules are complicated and ever-changing. A crucial part of the tax structuring is to ensure that management and control of the investment structure is, and can clearly be shown to be, in Jersey. It is also important that those appointed to manage and administer the structure have the ability and experience to make the decisions that are required, albeit often with advice from the appropriate advisors. When the underlying assets are in the UK, use of a Jersey structure can assist in ensuring that capital gains are not subject to UK taxation. UK Stamp Duty Land Tax (currently 4%) is not payable on the sale of the asset if the shares of the special purpose company or partnership interests in the Jersey Limited Partnership are sold. Net income from an investment asset is also taxed in a different manner, often resulting in a lower effective tax rate.
Jersey’s International Finance Centre The Jersey Development Company (JDC), owned by the States of Jersey, is commencing the first phase of the construction of Jersey’s International Finance Centre (JIFC) in 2014. The JIFC is creating an important new flagship business district for Jersey’s premier industry. Its location is at the heart of St Helier’s business district and is in close proximity to its retail core.The development will deliver a total of 500,000 sq. ft. of Grade A office accommodation, in six standalone buildings with column free floorplates and private parking, and will be of the highest architectural and environmental standards. JDC is in discussion with a number of interested tenants for the first buildings and these are anticipated to be ready for occupation in early 2016. For further information, visit www.jifc.je
Where the underlying asset is a UK development property the UK/Jersey Double Taxation Treaty is helpful in reducing exposure to UK taxation. From a taxation perspective, development is more difficult and requires careful structuring and implementation to avoid the Jersey entity creating a Permanent Establishment in the UK. GCC investors in commercial property can rest assured that service providers in Jersey are able to assist in all matters arising during the lifetime of real estate projects. ■
It allows for funding requirements to be drawn down over a period (particularly useful where a number of assets are being acquired or an asset is being developed over a period)
Limited partner investors have limited liability under Jersey law, provided that they do not take part in the management of the Limited Partnership
Limited Partnerships are transparent for taxation purposes
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GCC Banks in Jersey
Not only are Jersey-based organisations well established in the Gulf region, GCC banks have a strong presence in Jersey too.
Emirates NBD, one of the largest banks in the region by assets and the leading banking group in the UAE, has been represented in Jersey since the 1980’s. The trust company Emirates NBD Trust Company (Jersey) Limited was established in 2001. The Jersey business provides fiduciary services to the Bank’s HNWI client base. It has strong links with Emirates NBD London Branch, which has traditionally focused on providing offshore structuring for clients investing in London property. Increasingly, the new business coming into Jersey is originating from the Bank’s regional hubs in the UAE, Saudi Arabia and Qatar, where Jersey’s positioning has made it the jurisdiction of choice where commercial motivations require a tax neutral solution. Alistair Rothwell, a local director on the trust company noted; “It is a fantastic opportunity for Jersey to increase its links with the GCC and it is clear that the Jersey trust company has much to offer and benefits from leveraging synergies from one of the Middle East’s leading banks.” The Jersey office is also involved in the fund administration for the Bank, being licensed to undertake all such work through its local partner, Fairway Fund Services Limited.
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National Bank of Abu Dhabi (NBAD) has a decade-long history in Jersey – it established NBAD Trust Company (Jersey) Limited in 2003. NBAD Trust Company (Jersey) Limited recently launched a ground-breaking pension scheme. Its ‘Wealth Builder Plan’ is the first ever pension scheme for expatriates by a UAE bank. The scheme allows employers in the UAE the ability to offer their expatriate staff enhanced corporate savings and pension options and has been specifically designed for domestic and multi-national companies that employ expatriates. NBAD Trust Company (Jersey) Limited will act as trustees for the new scheme, whilst the administration will be carried out by RBC Corporate Employee and Executive Services. Sean Costello, Chief Representative Officer of Jersey Finance in GCC and India, said; “We are delighted that NBAD has decided to work with Jersey to launch its new service. Whilst expatriates make up almost 90% of the UAE’s population, there is no federal pension scheme for expatriates there, so for Jersey to be involved in such a major, innovative development is excellent news.”
The fourth largest bank of the United Arab Emirates, Abu Dhabi Commercial Bank PJSC (ADCB) launched its first branch in Jersey in 2011. The branch provides offshore savings solutions to its diverse base of over half a million individual customers. Reflective of the UAE economy in general, more than 60% of ADCB customers are expatriates working in the UAE and they are often prepared to look globally when searching for the optimal savings solutions. With the ADCB Offshore branch, customers enjoy the best of both worlds – banking with a large ‘local’ bank of their choice, coupled with the additional safety and security provided by Jersey. Deepak Rochlani, Executive Vice President, Head of Liabilities & Wealth Management Group, ADCB, explains; “The launch of our Jersey Branch is a testament to ADCB’s continued commitment to the UAE banking sector and is expected to facilitate further positive growth in the industry. With Offshore Banking our customers will get local access to international wealth solutions from a secure and highly regulated jurisdiction. The launch of ADCB Offshore Banking through our Jersey branch is another stride towards helping our customers to achieve their financial ambitions.”
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For Gulf banks Jerseyâ€™s finance industry has an established reputation for corporate structuring and Jersey companies and trusts have frequently been established as special purpose vehicles (SPVs) for financial structuring transactions. Historically, GCC Obligors would use a subsidiary company as an SPV. However, Shariah scholars have deemed this unacceptable and require that SPVs be independent, enabling Jersey products to be used successfully within Sukuk structures. Jersey-based SPVs have been used in connection with a wide variety of Shariah-compliant Islamic capital markets transactions. These have included, amongst others, structures established for the purpose of making investments off-balance sheet and securitising assets. âž¤
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Examples of Islamic banks using Jersey SPVs The International Finance Team at Ogier provided specialist offshore administration for the following examples and Ogier Legal provided legal advice where appropriate.
GULF INTERNATIONAL BANK
Location Bahrain Purpose Provision of administration and director services to a closed joint stock company incorporated in the Kingdom of Bahrain. The company was incorporated for the issuance of Ringgit-denominated Islamic medium term note of up to RM3.5 billion in nominal value based on the Shariah principle of Wakalah.
EMIRATES NBD BANK
Location UAE Purpose: Emirates NBD Bank arranged a ÂĽ24 billion ($280 million) auto loan securitisation which involved the establishment of two Jersey SPVs to act as the asset purchase company and repackaging company in the assetbacked auto loan securitisation. The notes issued by the Jersey SPVs were listed on the Irish Stock Exchange.
ISLAMIC DEVELOPMENT BANK
Location Saudi Arabia Purpose: Incorporation of a Jersey company issuing trust certificates in connection with a US$6.5 billion sukuk trust certificate programme. The Jersey company will be admitted to listing on the London Stock Exchange and the trust certificates will be listed (but not quoted for trading) on the Bursa Malaysia.
AL SALAM BANK
Location Bahrain Purpose The establishment of a Jersey special purpose vehicle to be involved in a ÂŁ38 million Shariah compliant mezzanine facility to refinance a landmark commercial property located in Canary Wharf, London.
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RESOURCES For Natural Resources
The range of services provided to the corporate sector from Jersey is one of the features that differentiates the jurisdiction from its competitors. Many major companies in the Natural Resources sector in the GCC have looked to Jersey for expertise. The services provided include corporate structuring and company secretarial and administration services.
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Mourant Ozannes’ Jersey office has acted for Kuwait Energy since 2011.
Ogier Corporate Services provides company secretarial and administration services to Petrofac Limited and 17 of its subsidiaries and joint venture vehicles.
Kuwait Energy is an independent oil and gas exploration, development and production group, which operates in Egypt, Iraq, Yemen, Oman, Ukraine, Latvia, Russia and Pakistan. Mourant Ozannes first advised on the restructure of the Kuwait Energy group, which took place between August and December 2011, whereby a new Jersey holding company, Kuwait Energy plc, was incorporated and introduced into the group. Subsequently, Kuwait Energy Company KSCC (the former parent company of the Kuwait Energy group) transferred its ownership of all of the group’s operational subsidiaries and material assets to Kuwait Energy plc. Since then, Mourant Ozannes has advised Kuwait Energy plc on a number of new and existing financing facilities including a US$150m strategic investment agreement with Abraaj Capital, a US$150m convertible Murabaha facility agreement with Qatar First Investment Bank and a US$165m reserve based lending facility. Mourant Ozannes also continues to give general corporate, finance and structuring advice to the group.
FINANCING FACILITIES MOURANT OZANNES HAS ADVISED ON
Petrofac is an oilfield service company, providing services to clients across the entire spectrum of the oil and gas asset life cycle. Petrofac’s teams design and build oil and gas infrastructure; operate, maintain and manage assets; and train personnel. Petrofac helps customers develop their energy resources, bringing world class capability and delivering it locally. Petrofac employs in excess of 18,000 people of over 80 different nationalities, working out of operational centres in Aberdeen, Sharjah, Woking, Chennai, Mumbai, Abu Dhabi and Kuala Lumpur, and a further 24 offices and 12 training facilities worldwide.
18,000 employees Over 80 nationalities MARKET CAPITALISATION
Strategic investment agreement with Abraaj Capital
Murabaha facility agreement with Qatar First Investment Bank
Petrofac’s shares are traded on the London Stock Exchange and the company has a market capitalisation of approximately £4.83bn. In 2012, Petrofac Limited generated revenue of US$6,324m. ■
Revenue generated by Petrofac Limited in 2012
reserve based lending facility
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Mark Leale, Regional Manager, Nedbank Private Wealth explains how an effective approach to a firmâ€™s end of service gratuity obligation remains an essential consideration for companies across the UAE, requiring thorough planning, professional implementation and careful on-going management.
End of Service Gratuity Schemes
The total end of service liability is estimated to amount to in excess of $16 billion and, of this figure, $4 billion is within UAE firms
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End of service gratuity defined The end of service gratuity is the sum of money that an employer is required, under UAE labour law, to pay an employee upon the ending of their contract of employment. This benefit has, since its introduction approximately 40 years ago, been the only formal pension or retirement fund available to expatriate workers in the country. The system is not unique to the UAE, with similar legislation across the GCC, where the total end of service liability is estimated to amount to in excess of $16 billion and, of this figure, $4 billion is within UAE firms. The UAE does not offer a federal pension scheme for expatriates who work in the country, where it is estimated that the expatriate population stands at 7.2 million, according to the National Bureau of Statistics. This high concentration of foreign workers is leading to a move to more formal structuring of companies’ end of service gratuity requirements within the UAE. It has been widely reported that the UAE Government, in consultation with the World Bank, is considering alternatives to the current system. In the meantime, both local and multinational firms are taking steps to form their own schemes, working with professional service providers.
Flexibility The exact nature and complexity of any scheme can differ from one firm to the next, and some can also provide more complex retirement planning solutions, however all will be structured using an offshore trust as the main holding vehicle. During the planning stages, trustees will work closely with the company’s finance team and legal advisers to ensure that all requirements are considered and included within the trust documentation. Employers have the ability to choose from many options including: ■ The recording of individual employee benefits within the gratuity scheme, giving employees individual logins to view their accumulated benefits online ■ A wide range of investment options from the chosen investment manager ■ Employees have the ability to make additional voluntary contributions ■ Death in service benefits are available
Benefits to employees There are definite benefits to both employer and employee in the formal structuring of end of service gratuity schemes through the use of offshore trusts. Looking at the employee perspective: ■ By settling gratuity assets into trust, accumulated benefits are segregated from the company balance sheet, thereby safeguarding employees’ rights in case of employer bankruptcy, litigation or mismanagement of company funds ■ The employee could receive a higher level of benefit should their employer opt to remove the gratuity benefit caps seen under present legislation. Currently this states that the employee will receive the lump sum benefit based solely on length of service and earnings, and this benefit obligation is presently capped at two year’s salary ■ Investment options provide the employee with an opportunity to grow the gratuity assets in real terms ■ In setting in place formal end of service gratuity structuring, employers are able to offer competitive employment packages to international employees, attracting them to the UAE, rewarding them for their service and retaining them long term In terms of the provision of such gratuity schemes, the jurisdiction of the trust and custody of the assets is without doubt a significant factor. Jersey continues to be highly regarded globally as a well regulated and secure international financial centre. It is home to a large concentration of expertise in the provision of trust, banking and investment services for a global client base, and is fast becoming a jurisdiction of choice for Middle East based clients. Expertise in Jersey is based upon a long established financial services sector, which is often seen as the model for others around the world. Innovative and often emulated, Jersey’s trust legislation is founded on decades of practical application, offering considerable peace of mind to those less familiar with these structures.■
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About Jersey Finance This publication is brought to you by Jersey Finance, a body established in 2001 to promote and lead the development of Jersey as an international finance centre. The organisation’s primary objective is to communicate the many factors that make Jersey a leading international finance centre, including the experience and expertise of its practitioners; its political, economic and fiscal stability; and its high level of regulation and security. It also actively represents the finance industry’s needs and concerns with regard to legislation, regulation and other key areas of innovation that can enhance Jersey’s product offering.
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Gulf Region Office
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Jersey Finance Members
The States of Jersey (Jersey’s Government)
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Useful Network of Contacts
Jersey Funds Association Website: www.jerseyfunds.org
Jersey Chamber of Commerce Website: www.jerseychamber.com
Jersey Society of Chartered and Certified Accountants Website: www.jscca.org
Chartered Institute of Marketing Website: www.cimjersey.com
Locate Jersey Website: www.locatejersey.com
Jersey International Insurance Association Website: www.jerseyiia.org